I know, when it comes to taxes, most of us want to run the other way. But I am here to tell you that instead of running from taxes, you should embrace taxes. Am I crazy? I’m not sure as I’ve never been tested. But since taxes make up such a large part of our expenses, it’s important that you take the time to understand them.
You Don’t Need an Advanced Degree in Taxes
Before I get into the various reasons as to why you need to understand taxes, let me make one thing clear: you don’t need to become a tax expert. I am not asking you to get an advanced degree in tax accounting or even work in the tax accounting field. What I am asking is that you have a basic understanding of taxes.
This applies to both the basic idea of taxes as well as current and new tax law. Unless you’ve been living under a rock, tax law changes all of the time. Deductions and credits are modified to take into account inflation, as are exemptions.
Luckily, at the end of the year, publications have stories on all of the new and expiring tax laws coming in the new year. When you see a tax article in the newspaper or online, take the five or ten minutes to read through it. Heck, I’ll even settle for you skimming it and picking up pieces of information here and there along the way.
So why do I suggest you understand the basics of taxes along with some current and new tax laws? Here are three things to consider.
You Work Hard for Your Money
The number one reason as to why you should learn about taxes is because you work hard for you money. What’s the point of working 40 hours per week each and every year if you are going to give away more than you should in taxes? There isn’t much point. By learning the basics of tax accounting you will have a greater sense of comfort and control over your money.
Read More: How Do Tax Brackets Work?
Keep as Much as You Can for Yourself
You work hard for your money and you should work hard to keep it. I’m not suggesting you take part in tax evasion, but rather tax avoidance. Tax avoidance is simply doing the necessary steps to pay the least amount of income tax possible, legally. In other words, taking every deduction and credit you qualify to take.
By staying on top of new tax laws, you can run ideas by your tax accountant to see how you might be able to take advantage of them and save more of your money.
Read More: How to Calculate Self Employment Tax
No One Cares About Your Money as Much as You Do
Many of us use professionals to handle our taxes. But how certain are you that your tax preparer is applying every credit and deduction that you qualify for in your tax situation? If you have no clue about taxes, you cannot be certain at all. Trust me when I say that ignorance is no excuse.
I’m not putting down tax preparers when I say this, but they are stressed and have a lot of work to do during tax season. With all of the hustle and bustle and stress, it’s only natural that they might miss a credit or deduction here and there. After all, they are only human.
By understanding some basic principles of tax accounting, you can help yourself by asking intelligent questions without coming off as accusatory. You can simply ask, “I read about so-and-so deduction. Do we qualify for that”? That gives your accountant the chance to explain why or why not you qualify and if it was taken care of, assuming you do qualify.
Here’s one other reason: I’ve worked in a tax accounting firm. Many times, the smaller returns, as in the households without much income, or many deductions and credits, are given to the junior accountants and then reviewed by the senior accountants. When this is done, there are mistakes that can be made.
When I would put financial plans together for clients, I wouldn’t sit in the meetings; I would go off of the advisors notes. But if he didn’t write something down, I had no idea to include it in the plan. Same applies with the above. If the junior accountant misses something and the senior accountant doesn’t have the papers to see that it was missed, how would he catch the missing deduction? Chances are he won’t.
Read More: Do the Rich Pay More or Less in Taxes?
NBC sometimes runs little public service commercials on their channel entitled “The More You Know”. Understanding taxes is the same idea. The more you know about a subject, the better off you are. The more you know about taxes, the more you can strategically invest your money and save money so that you pay the smallest amount of tax legally possible.
As I mentioned before, you work hard for your money, so why are you willing to be so lax in keeping it? Make it point to learn a little bit about taxes so that you can be smarter with your finances and keep more of it. The more you keep, the more you can grow it and enjoy it.
Use TurboTax to work through your tax situation this year on your own. Did you get the same numbers as your tax preparer?